CONTINENTAL RESOURCES, INC false 0000732834 0000732834 2021-11-03 2021-11-03

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): November 3, 2021

 

 

CONTINENTAL RESOURCES, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Oklahoma   001-32886   73-0767549

(State or other jurisdiction of

incorporation or organization)

 

(Commission

File Number)

 

(I.R.S. Employer

Identification No.)

 

20 N. Broadway

Oklahoma City, Oklahoma

  73102
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (405) 234-9000

Not Applicable.

(Former name or former address, if changed since last report.)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

symbol(s)

 

Name of each exchange

on which registered

Common Stock, $0.01 par value   CLR   New York Stock Exchange

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR 230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR 240.12b-2). Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

 

 


Item 2.02 Results of Operations and Financial Condition

On November 3, 2021, Continental Resources, Inc. (the “Company”) issued a press release announcing, among other things, its third quarter 2021 financial and operating results, updated 2021 operational guidance and the Company’s expansion into the Permian Basin. A copy of the press release is being furnished as an exhibit to this report on Form 8-K.

Item 7.01 Regulation FD Disclosure

Reference materials in connection with the third quarter 2021 earnings call scheduled for November 4, 2021 at 11:00 a.m. Eastern time (10:00 a.m. Central time), will be available on the Company’s web site at www.CLR.com, prior to the start of the call.

Item 9.01 Financial Statements and Exhibits

(d) Exhibits

 

Exhibit

Number

  

Description

99.1    Press release dated November 3, 2021
104    Cover page interactive data file (embedded within the Inline XBRL document)


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

  CONTINENTAL RESOURCES, INC.
  (Registrant)
Dated: November 3, 2021  
  By:  

/s/ John D. Hart

    John D. Hart
    Senior Vice President, Chief Financial Officer and Chief Strategy Officer

Exhibit 99.1

NEWS RELEASE

 

CONTINENTAL RESOURCES ANNOUNCES 3Q21 RESULTS;

DELIVERING RECORD FREE CASH FLOW & STRATEGIC EXPANSION INTO PERMIAN BASIN

 

 

$369.3 MM Net Income; $1.01 per Diluted Share ($437.2 MM Adjusted Net Income; $1.20 per Adjusted Share (Non-GAAP)) in 3Q21

 

 

$1.0 B Cash Flow from Operations & Company Record $669 MM Free Cash Flow (Non-GAAP) in 3Q21

 

 

$3.9 B Projected Full-Year 2021 Cash Flow from Operations & $2.6 B Projected Full-Year 2021 Free Cash Flow (FCF) (Non-GAAP) at Current Strip Prices1 (~14% FCF Yield2 (Non-GAAP))

 

 

Highly Accretive Expansion into Permian Basin; Immediately Additive to FCF Capacity

 

   

Adds up to 2% to Projected Return on Capital Employed3 (ROCE) on an Annual Basis4

 

   

Over 650 Gross Operated Locations in Third Bone Spring/Wolfcamp A & B; Over 1,000 Total Locations, Including Additional Zones Producing in the Basin

 

   

92 K Contiguous Net Leasehold Acres & 50 K Net Royalty Acres5; Extensive Owned Water Infrastructure

 

   

PDP6 Represents ~75% of Transaction Price; ~55 MBoepd (~70% Oil)

 

 

Accelerating Commitment to Shareholder Capital & Corporate Returns

 

   

$0.05 Increase to Quarterly Dividend to $0.20 per Share; Approximately 1.6% Annualized Dividend Yield7

 

   

$65 MM Share Repurchases Executed; $618 MM Remaining under Previous Board Authorization

 

   

21% Projected ROCE in 2021

Oklahoma City, November 3, 2021 – Continental Resources, Inc. (NYSE: CLR) (the “Company”) today announced its third quarter 2021 operating and financial results.

The Company reported net income of $369.3 million, or $1.01 per diluted share, for the quarter ended September 30, 2021. In third quarter 2021, typically excluded items in aggregate represented $67.9 million, or $0.19 per diluted share, of Continental’s reported net income. Adjusted net income for third quarter 2021 was $437.2 million, or $1.20 per diluted share (non-GAAP). Net cash provided by operating activities for third quarter 2021 was $1.02 billion and EBITDAX was $1.12 billion (non-GAAP).

Adjusted net income (loss), adjusted net income (loss) per share, EBITDAX, free cash flow, free cash flow yield, net debt, net sales prices and cash general and administrative (G&A) expenses per barrel of oil equivalent (Boe) presented herein are non-GAAP financial measures. Definitions and explanations for how these measures relate to the most directly comparable U.S. generally accepted accounting principles (GAAP) financial measures are provided at the conclusion of this press release.

 

 

1 

NYMEX strip pricing for the remainder of the year, as of October 15, 2021.

2 

FCF yield is estimated by dividing the 2021 annual FCF estimate by the Company’s current market capitalization, as of November 1, 2021.

3 

Return on capital employed represents net income attributable to the Company before non-cash gains and losses on derivatives, income taxes, non-cash equity compensation expense, interest expense, and gains and losses on extinguishment of debt, the result of which is divided by average capital employed for the year, with capital employed representing the sum of total debt and total shareholders’ equity attributable to the Company.

4 

Based on current Company five-year forecast.

5 

Normalized to 1/8th royalty.

6 

Per historical 3-stream reporting. Includes PDP and anticipated volumes from wells in progress expected to be on line in first quarter 2022.

7 

Calculated as annual dividend per share divided by the stock price per share as of November 1, 2021. All future dividends require Board approval.


The Company generated $1.02 billion of cash flow from operations and a Company record $669 million of free cash flow (non-GAAP) for the third quarter 2021. The Company now projects generating $3.9 billion of cash flow from operations and $2.6 billion of free cash flow (non-GAAP) for full-year 2021 at current strip prices, or approximately 14% free cash flow yield (non-GAAP).

Highly Accretive Expansion into Permian Basin; Immediately Additive to FCF Capacity

The Company announced today it has entered into a definitive agreement under which the Company will acquire select Permian Basin assets from Pioneer Natural Resources in an all-cash transaction valued at approximately $3.25 billion, subject to customary purchase price adjustments. The transaction has been unanimously approved by the Company’s Board of Directors, with an effective date of October 1, 2021 and an expected close in December 2021, subject to customary closing conditions.

“Continental’s foundation has always been built upon a strong geology-led corporate strategy. This continues today and has directly led us to our new strategic position in the Permian Basin. This acquisition will complement our existing deep inventory portfolio in the Bakken, Oklahoma and most recently, the Powder River Basin. In addition to the competitive geologic attributes, this transaction is accretive on key financial metrics and supports our long term target of 1.0x net debt to EBITDAX by year end 2022 at $60 WTI,” said Bill Berry, Chief Executive Officer.

Key Transaction Highlights

 

   

Accretive to cash flow per share, earnings per share, cash margin and return on capital employed.

 

   

Adds up to 2% to projected return on capital employed on an annual basis.

 

   

Projected to generate $750 MM of annual cash flow from operations & $500 MM of annual free cash flow (non-GAAP) in 2022 at current prices.

 

   

PDP represents ~75% of transaction price; ~55 MBoepd (~70% oil).

 

   

92 K contiguous net leasehold acres.

 

   

98% operated with over 90% of acreage held by production.

 

   

50 K net royalty acres and 31 K net surface acres.

 

   

Extensive owned water infrastructure.

 

   

Over 650 gross operated locations in Third Bone Spring/Wolfcamp A & B; over 1,000 total locations, including additional zones producing in the basin.

 

   

Company projects 1.0x net debt (non-GAAP) to EBITDAX (non-GAAP) by YE22 ($60 WTI and gas strip prices)8.

“These Permian assets contain the key strategic components common to all of our assets with significant untapped potential to enhance performance through optimized density development, wellbore placement, operational efficiencies and further exploration,” said Jack Stark, President & Chief Operating Officer.

 

 

8 

Gas strip pricing as of October 4, 2021.

 

2


Citi Global Market, Inc. is serving as the Company’s financial advisor and White & Case LLP is serving as the Company’s legal advisor with respect to this transaction.

Accelerating Commitment to Shareholder Capital & Corporate Returns

The Company’s Board of Directors approved increasing the Company’s quarterly dividend to $0.20 per share, payable on November 26, 2021 to stockholders of record on November 15, 2021. This dividend represents a $0.05 increase to the Company’s $0.15 per share quarterly dividend paid in third quarter 2021 and equates to an approximately 1.6% annualized dividend yield. The Company also resumed transactions under its existing share repurchase program, with $65 million of share repurchases executed in third quarter 2021 and $618 million of share repurchase capacity remaining under the previous Board of Directors authorization. Additionally, the Company is projecting approximately 21% return on capital employed for 2021.

Production & Operations Update

Third quarter 2021 total production averaged 331.4 MBoepd. Third quarter 2021 oil production averaged 157.2 MBopd. Third quarter 2021 natural gas production averaged 1,046 MMcfpd. The following table provides the Company’s average daily production by region for the periods presented.

 

Boe per day

   3Q
2021
     3Q
2020
     YTD
2021
     YTD
2020
 

Bakken

     167,604        160,661        167,632        150,366  

South

     152,543        129,583        147,646        129,559  

All other

     11,260        6,757        10,824        6,997  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     331,407        297,001        326,102        286,922  

Financial Update

“We are delivering strong competitive cash flow this year, as demonstrated by our 14% projected free cash flow yield even after our stock price has nearly tripled year-to-date. The third consecutive increase in our quarterly dividend underscores confidence in our sustainable free cash flow. Additionally, our corporate returns continue to expand, with a projected 21% return on capital employed in 2021 highlighting enhanced value creation. Free cash flow, return on capital employed and other financial metrics should further improve pending our recent Permian acquisition,” said John Hart, Senior Vice President, Chief Financial Officer & Chief Strategy Officer.

The Company has updated its 2021 guidance, as shown in the table at the conclusion of this press release.

 

3


3Q 2021 Financial Update

   Three Months Ended
September 30, 2021
     Nine Months Ended
September 30, 2021
 

Cash and Cash Equivalents

        $693.6 million  

Total Debt

        $4.74 billion  

Net Debt (non-GAAP)(1)

        $4.05 billion  

Average Net Sales Price (non-GAAP)(1)

     

Per Barrel of Oil

     $66.48        $60.79  

Per Mcf of Gas

     $4.62        $4.38  

Per Boe

     $46.07        $43.04  

Production Expense per Boe

     $3.39        $3.29  

Total G&A Expenses per Boe

     $1.92        $1.87  

Crude Oil Net Sales Price Discount to NYMEX ($/Bbl)

     ($4.09      ($4.13

Natural Gas Net Sales Price Premium to NYMEX ($/Mcf)

     $0.62        $1.17  

Non-Acquisition Capital Expenditures attributable to CLR

     $383.7 million        $966.6 million  

Exploration & Development Drilling & Completion

     $312.3 million        $784.1 million  

Leasehold and minerals

     $20.0 million        $43.5 million  

Workovers, Recompletions and Other

     $51.4 million        $139.0 million  

Minerals attributable to FNV

     $6.0 million        $9.7 million  

 

(1)

Net debt and net sales prices represent non-GAAP financial measures. Further information about these non-GAAP financial measures as well as reconciliations to the most directly comparable U.S. GAAP financial measures are provided subsequently under the header Non-GAAP Financial Measures.

The following table provides the Company’s production results, per-unit operating costs, results of operations and certain non-GAAP financial measures for the periods presented. Average net sales prices exclude any effect of derivative transactions. Per-unit expenses have been calculated using sales volumes.

 

4


     Three months ended September 30,     Nine months ended September 30  
     2021     2020     2021     2020  

Average daily production:

        

Crude oil (Bbl per day)

     157,153     169,265     158,609     155,088

Natural gas (Mcf per day)

     1,045,521     766,416     1,004,954     791,005

Crude oil equivalents (Boe per day)

     331,407     297,001     326,102     286,922

Average net sales prices (non-GAAP), excluding effect from derivatives: (1)

 

Crude oil ($/Bbl)

   $ 66.48   $ 35.93   $ 60.79   $ 33.71

Natural gas ($/Mcf)

   $ 4.62   $ 0.98   $ 4.38   $ 0.72

Crude oil equivalents ($/Boe)

   $ 46.07   $ 23.23   $ 43.04   $ 20.21

Production expenses ($/Boe)

   $ 3.39   $ 3.19   $ 3.29   $ 3.45

Production taxes (% of net crude oil and natural gas sales)

     7.3     7.8     7.3     8.3

DD&A ($/Boe)

   $ 15.29   $ 16.58   $ 16.26   $ 16.37

Total general and administrative expenses ($/Boe) (2)

   $ 1.92   $ 1.63   $ 1.87   $ 1.65

Net income (loss) attributable to Continental Resources (in thousands)

   $ 369,328   $ (79,422   $ 918,295   $ (504,372

Diluted net income (loss) per share attributable to Continental Resources

   $ 1.01   $ (0.22   $ 2.52   $ (1.39

Adjusted net income (loss) (non-GAAP) (in thousands) (1)

   $ 437,237   $ (58,871   $ 1,048,893   $ (342,139

Adjusted diluted net income (loss) per share (non-GAAP) (1)

   $ 1.20   $ (0.16   $ 2.88   $ (0.95

Net cash provided by operating activities (in thousands)

   $ 1,015,535   $ 291,197   $ 2,728,653   $ 934,767

EBITDAX (non-GAAP) (in thousands) (1)

   $ 1,121,294   $ 473,311   $ 3,074,868   $ 1,103,571

 

(1)

Net sales prices, adjusted net income (loss), adjusted diluted net income (loss) per share, and EBITDAX represent non-GAAP financial measures. Further information about these non-GAAP financial measures as well as reconciliations to the most directly comparable U.S. GAAP financial measures are provided subsequently under the header Non-GAAP Financial Measures.

(2)

Total general and administrative expense is comprised of cash general and administrative expense (non-GAAP) and non-cash equity compensation expense. Cash general and administrative expense per Boe was $1.45, $1.04, $1.37, and $1.04 for 3Q 2021, 3Q 2020, YTD 2021, and YTD 2020, respectively. Non-cash equity compensation expense per Boe was $0.47, $0.59, $0.50, and $0.61 for 3Q 2021, 3Q 2020, YTD 2021, and YTD 2020, respectively.

Third Quarter Earnings Conference Call

The Company plans to host a conference call to discuss third quarter 2021 results on Thursday, November 4, 2021 at 11:00 a.m. ET (10:00 a.m. CT). Those wishing to listen to the conference call may do so via the Company’s website at www.CLR.com or by phone:

 

Time and date:    11:00 a.m. ET, Thursday, November 4, 2021
Dial-in:    1-888-317-6003
Intl. dial-in:    1-412-317-6061
Conference ID:    8481323

A replay of the call will be available for 14 days on the Company’s website or by dialing:

 

Replay number:    1-877-344-7529
Intl. replay:    1-412-317-0088
Conference ID:    10160546

The Company plans to publish a third quarter 2021 summary presentation to its website at www.CLR.com prior to the start of its conference call on Thursday, November 4, 2021.

 

5


About Continental Resources

Continental Resources (NYSE: CLR) is a top 10 independent oil producer in the U.S. and a leader in America’s energy renaissance. Based in Oklahoma City, Continental is the largest leaseholder and the largest producer in the nation’s premier oil field, the Bakken play of North Dakota and Montana. The Company has significant positions in Oklahoma, including its SCOOP Woodford and SCOOP Springer discoveries and the STACK play. The Company also has a newly acquired position in the Powder River Basin play of Wyoming. With a focus on the exploration and production of oil, Continental has unlocked the technology and resources vital to American energy independence and our nation’s leadership in the new world oil market. In 2021, the Company will celebrate 54 years of operations. For more information, please visit www.CLR.com.

Cautionary Statement for the Purpose of the “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995

This press release includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements included in this press release other than statements of historical fact, including, but not limited to, forecasts or expectations regarding the Company’s business and statements or information concerning the Company’s future operations, performance, financial condition, production and reserves, schedules, plans, timing of development, rates of return, budgets, costs, business strategy, objectives, and cash flows are forward-looking statements. When used in this press release, the words “could,” “may,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project,” “budget,” “target,” “plan,” “continue,” “potential,” “guidance,” “strategy,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words.

Forward-looking statements are based on the Company’s current expectations and assumptions about future events and currently available information as to the outcome and timing of future events. Although the Company believes these assumptions and expectations are reasonable, they are inherently subject to numerous business, economic, competitive, regulatory and other risks and uncertainties, most of which are difficult to predict and many of which are beyond the Company’s control. No assurance can be given that such expectations will be correct or achieved or that the assumptions are accurate. The risks and uncertainties include, but are not limited to, commodity price volatility; the geographic concentration of our operations; financial market and economic volatility; the effects of any national or international health crisis; the inability to access needed capital; the risks and potential liabilities inherent in crude oil and natural gas drilling and production and the availability of insurance to cover any losses resulting therefrom; difficulties in estimating proved reserves and other reserves-based measures; declines in the values of our crude oil and natural gas properties resulting in impairment charges; our ability to replace proved reserves and sustain production; our ability to pay future dividends or complete share repurchases; the availability or cost of equipment and oilfield services; leasehold terms expiring on undeveloped acreage before production can be established; our ability to project future production, achieve targeted results in drilling and well operations and predict the amount and timing of development expenditures; the availability and cost of transportation, processing and refining facilities; legislative and regulatory changes adversely affecting our industry and our business, including initiatives related to hydraulic fracturing and greenhouse gas emissions; increased market

 

6


and industry competition, including from alternative fuels and other energy sources; and the other risks described under Part I, Item 1A. Risk Factors and elsewhere in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, registration statements and other reports filed from time to time with the SEC, and other announcements the Company makes from time to time.

Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which such statement is made. Should one or more of the risks or uncertainties described in this press release occur, or should underlying assumptions prove incorrect, the Company’s actual results and plans could differ materially from those expressed in any forward-looking statements. All forward-looking statements are expressly qualified in their entirety by this cautionary statement. Except as otherwise required by applicable law, the Company undertakes no obligation to publicly correct or update any forward-looking statement whether as a result of new information, future events or circumstances after the date of this report, or otherwise.

Readers are cautioned that initial production rates are subject to decline over time and should not be regarded as reflective of sustained production levels. In particular, production from horizontal drilling in shale oil and natural gas resource plays and tight natural gas plays that are stimulated with extensive pressure fracturing are typically characterized by significant early declines in production rates.

We use the term “EUR” or “estimated ultimate recovery” to describe our best estimate of recoverable oil and natural gas hydrocarbon quantities. Actual reserves recovered may differ from estimated quantities. EUR data included herein, if any, remain subject to change as more well data is analyzed.

 

Investor Contact:    Media Contact:
Rory Sabino    Kristin Thomas
Vice President, Investor Relations    Senior Vice President, Public Relations
405-234-9620    405-234-9480
[email protected]    [email protected]

Lucy Spaay

Investor Relations Analyst

405-774-5878

[email protected]

 

7


Continental Resources, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

 

     Three months ended September 30,     Nine months ended September 30,  
     2021     2020     2021     2020  
     In thousands, except per share data  

Revenues:

        

Crude oil and natural gas sales

   $ 1,456,181   $ 701,468   $ 3,986,628   $ 1,738,863

Loss on derivative instruments, net

     (127,110     (17,853     (232,795     (25,635

Crude oil and natural gas service operations

     12,341     8,755     38,519     35,602
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     1,341,412     692,370     3,792,352     1,748,830

Operating costs and expenses:

        

Production expenses

     103,222     88,701     292,791     271,852

Production taxes

     102,398     50,153     280,667     132,444

Transportation expenses

     53,969     55,272     156,670     148,079

Exploration expenses

     2,534     1,041     9,470     14,638

Crude oil and natural gas service operations

     4,884     3,316     15,037     15,288

Depreciation, depletion, amortization and accretion

     465,357     461,191     1,446,823     1,288,185

Property impairments

     7,945     18,518     30,991     264,976

General and administrative expenses

     58,421     45,273     166,822     129,713

Net (gain) loss on sale of assets and other

     (3,029     800     (3,496     5,914
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating costs and expenses

     795,701     724,265     2,395,775     2,271,089
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     545,711     (31,895     1,396,577     (522,259

Other income (expense):

        

Interest expense

     (59,894     (63,884     (185,796     (192,547

Gain (loss) on extinguishment of debt

     —         —         (290     64,573

Other

     345     224     895     1,385
  

 

 

   

 

 

   

 

 

   

 

 

 
     (59,549     (63,660     (185,191     (126,589
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     486,162     (95,555     1,211,386     (648,848

(Provision) benefit for income taxes

     (115,641     13,972     (291,116     138,350
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     370,521     (81,583     920,270     (510,498

Net income (loss) attributable to noncontrolling interests

     1,193     (2,161     1,975     (6,126
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Continental Resources

   $ 369,328   $ (79,422   $ 918,295   $ (504,372
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per share attributable to Continental Resources:

 

Basic

   $ 1.02   $ (0.22   $ 2.54   $ (1.39

Diluted

   $ 1.01   $ (0.22   $ 2.52   $ (1.39

 

8


Continental Resources, Inc. and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets

 

In thousands

   September 30, 2021      December 31, 2020  

Assets

     

Cash and cash equivalents

   $ 693,649    $ 47,470

Other current assets

     1,284,993      805,075

Net property and equipment (1)

     13,475,204      13,737,292

Other noncurrent assets

     52,317      43,261
  

 

 

    

 

 

 

Total assets

   $ 15,506,163    $ 14,633,098
  

 

 

    

 

 

 

Liabilities and equity

     

Current liabilities

   $ 1,404,559    $ 860,806

Long-term debt, net of current portion

     4,741,729      5,530,173

Other noncurrent liabilities

     2,138,809      1,819,394

Equity attributable to Continental Resources

     6,848,889      6,056,446

Equity attributable to noncontrolling interests

     372,177      366,279
  

 

 

    

 

 

 

Total liabilities and equity

   $ 15,506,163    $ 14,633,098
  

 

 

    

 

 

 

 

(1)

Balance is net of accumulated depreciation, depletion and amortization of $16.18 billion and $14.77 billion as of September 30, 2021 and December 31, 2020, respectively.

Continental Resources, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows

 

     Three months ended September 30,      Nine months ended September 30,  

In thousands

   2021      2020      2021      2020  

Net income (loss)

   $ 370,521    $ (81,583    $ 920,270    $ (510,498

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

           

Non-cash expenses

     687,296      489,905      1,961,607      1,427,992

Changes in assets and liabilities

     (42,282      (117,125      (153,224      17,273
  

 

 

    

 

 

    

 

 

    

 

 

 

Net cash provided by operating activities

     1,015,535      291,197      2,728,653      934,767

Net cash used in investing activities

     (352,587      (162,923      (1,123,801      (1,181,866

Net cash provided by (used in) financing activities

     (119,337      (113,693      (958,673      228,936
  

 

 

    

 

 

    

 

 

    

 

 

 

Net change in cash and cash equivalents

     543,611      14,581      646,179      (18,163

Cash and cash equivalents at beginning of period

     150,038      6,656      47,470      39,400
  

 

 

    

 

 

    

 

 

    

 

 

 

Cash and cash equivalents at end of period

   $ 693,649    $ 21,237    $ 693,649    $ 21,237

 

9


Non-GAAP Financial Measures

Non-GAAP adjusted net income (loss) and adjusted net income (loss) per share attributable to Continental

Our presentation of adjusted net income (loss) and adjusted net income (loss) per share that exclude the effect of certain items are non-GAAP financial measures. Adjusted net income (loss) and adjusted net income (loss) per share represent net income (loss) and diluted net income (loss) per share determined under U.S. GAAP without regard to non-cash gains and losses on derivative instruments, property impairments, gains and losses on asset sales, and gains and losses on extinguishment of debt as applicable. Management believes these measures provide useful information to analysts and investors for analysis of our operating results. In addition, management believes these measures are used by analysts and others in valuation, comparison and investment recommendations of companies in the oil and gas industry to allow for analysis without regard to an entity’s specific derivative portfolio, impairment methodologies, and property dispositions. Adjusted net income (loss) and adjusted net income (loss) per share should not be considered in isolation or as an alternative to, or more meaningful than, net income (loss) or diluted net income (loss) per share as determined in accordance with U.S. GAAP and may not be comparable to other similarly titled measures of other companies. The following tables reconcile net income (loss) and diluted net income (loss) per share as determined under U.S. GAAP to adjusted net income (loss) and adjusted diluted net income (loss) per share for the periods presented.

 

10


     Three months ended September 30,  
     2021      2020  

In thousands, except per share data

   $      Diluted EPS      $      Diluted EPS  

Net income (loss) attributable to Continental Resources (GAAP)

   $ 369,328    $ 1.01    $ (79,422    $ (0.22

Adjustments:

           

Non-cash loss on derivatives

     85,030         7,901   

Property impairments

     7,945         18,518   

Net (gain) loss on sale of assets and other

     (3,029         800   

Total tax effect of adjustments (1)

     (22,037         (6,668   
  

 

 

       

 

 

    

Total adjustments, net of tax

     67,909      0.19      20,551      0.06
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted net income (loss) (non-GAAP)

   $ 437,237    $ 1.20    $ (58,871    $ (0.16

Weighted average diluted shares outstanding

     364,248         360,257   
  

 

 

       

 

 

    

Adjusted diluted net income (loss) per share (non-GAAP)

   $ 1.20       $ (0.16   
     Nine months ended September 30,  
     2021      2020  

In thousands, except per share data

   $      Diluted EPS      $      Diluted EPS  

Net income (loss) attributable to Continental Resources (GAAP)

   $ 918,295    $ 2.52    $ (504,372    $ (1.39

Adjustments:

           

Non-cash loss on derivatives

     145,194         8,560   

Property impairments

     30,991         264,976   

Net (gain) loss on sale of assets and other

     (3,496         5,914   

(Gain) loss on extinguishment of debt

     290         (64,573   

Total tax effect of adjustments (1)

     (42,381         (52,644   
  

 

 

       

 

 

    

Total adjustments, net of tax

     130,598      0.36      162,233      0.44
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted net income (loss) (non-GAAP)

   $ 1,048,893    $ 2.88    $ (342,139    $ (0.95

Weighted average diluted shares outstanding

     364,479         361,948   
  

 

 

       

 

 

    

Adjusted diluted net income (loss) per share (non-GAAP)

   $ 2.88       $ (0.95   

 

(1)

Computed by applying a combined federal and state statutory tax rate of 24.5% in effect for 2021 and 2020 to the pre-tax amount of adjustments.

 

11


Non-GAAP Net Debt

Net debt is a non-GAAP measure. We define net debt as total debt less cash and cash equivalents as determined under U.S. GAAP. Net debt should not be considered an alternative to, or more meaningful than, total debt, the most directly comparable GAAP measure. Management uses net debt to determine the Company’s outstanding debt obligations that would not be readily satisfied by its cash and cash equivalents on hand. We believe this metric is useful to analysts and investors in determining the Company’s leverage position since the Company has the ability to, and may decide to, use a portion of its cash and cash equivalents to reduce debt. This metric is sometimes presented as a ratio with EBITDAX in order to provide investors with another means of evaluating the Company’s ability to service its existing debt obligations as well as any future increase in the amount of such obligations. At September 30, 2021, the Company’s total debt was $4.74 billion and its net debt amounted to $4.05 billion, representing total debt of $4.74 billion less cash and cash equivalents of $693.6 million. From time to time the Company provides forward-looking net debt forecasts; however, the Company is unable to provide a quantitative reconciliation of the forward-looking non-GAAP measure to the most directly comparable forward-looking GAAP measure of total debt because management cannot reliably quantify certain of the necessary components of such forward-looking GAAP measure. The reconciling items in future periods could be significant.

Non-GAAP EBITDAX

We use a variety of financial and operational measures to assess our performance. Among these measures is EBITDAX, a non-GAAP measure. We define EBITDAX as earnings before interest expense, income taxes, depreciation, depletion, amortization and accretion, property impairments, exploration expenses, non-cash gains and losses resulting from the requirements of accounting for derivatives, non-cash equity compensation expense, and gains and losses on extinguishment of debt as applicable. EBITDAX is not a measure of net income or net cash provided by operating activities as determined by U.S. GAAP.

Management believes EBITDAX is useful because it allows us to more effectively evaluate our operating performance and compare the results of our operations from period to period without regard to our financing methods or capital structure. Further, we believe EBITDAX is a widely followed measure of operating performance and may also be used by investors to measure our ability to meet future debt service requirements, if any. We exclude the items listed above from net income/loss and net cash provided by operating activities in arriving at EBITDAX because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired.

EBITDAX should not be considered as an alternative to, or more meaningful than, net income/loss or net cash provided by operating activities as determined in accordance with U.S. GAAP or as an indicator of a company’s operating performance or liquidity. Certain items excluded from EBITDAX are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are components of EBITDAX. Our computations of EBITDAX may not be comparable to other similarly titled measures of other companies.

 

12


The following table provides a reconciliation of our net income (loss) to EBITDAX for the periods presented.

 

     Three months ended
September 30,
     Nine months ended
September 30,
 

In thousands

   2021      2020      2021      2020  

Net income (loss)

   $ 370,521    $ (81,583    $ 920,270    $ (510,498

Interest expense

     59,894      63,884      185,796      192,547

Provision (benefit) for income taxes

     115,641      (13,972      291,116      (138,350

Depreciation, depletion, amortization and accretion

     465,357      461,191      1,446,823      1,288,185

Property impairments

     7,945      18,518      30,991      264,976

Exploration expenses

     2,534      1,041      9,470      14,638

Impact from derivative instruments:

           

Total loss on derivatives, net

     127,110      17,853      232,795      25,635

Total cash paid on derivatives, net

     (42,080      (9,952      (87,601      (17,075
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-cash loss on derivatives, net

     85,030      7,901      145,194      8,560

Non-cash equity compensation

     14,372      16,331      44,918      48,086

(Gain) loss on extinguishment of debt

     —          —          290      (64,573
  

 

 

    

 

 

    

 

 

    

 

 

 

EBITDAX (non-GAAP)

   $ 1,121,294    $ 473,311    $ 3,074,868    $ 1,103,571

The following table provides a reconciliation of our net cash provided by operating activities to EBITDAX for the periods presented.

 

     Three months ended
September 30,
     Nine months ended
September 30,
 

In thousands

   2021      2020      2021      2020  

Net cash provided by operating activities

   $ 1,015,535    $ 291,197    $ 2,728,653    $ 934,767

Current income tax benefit

     —          —          —          (2,223

Interest expense

     59,894      63,884      185,796      192,547

Exploration expenses, excluding dry hole costs

     2,534      901      9,470      8,182

Gain (loss) on sale of assets and other, net

     3,029      (800      3,496      (5,914

Other, net

     (1,980      1,004      (5,771      (6,515

Changes in assets and liabilities

     42,282      117,125      153,224      (17,273
  

 

 

    

 

 

    

 

 

    

 

 

 

EBITDAX (non-GAAP)

   $ 1,121,294    $ 473,311    $ 3,074,868    $ 1,103,571

 

13


Non-GAAP Free Cash Flow and Free Cash Flow Yield

Our presentation of free cash flow and free cash flow yield are non-GAAP measures. We define free cash flow as cash flows from operations before changes in working capital items, less capital expenditures, excluding acquisitions, plus noncontrolling interest capital contributions, less distributions to noncontrolling interests. Noncontrolling interest capital contributions and distributions primarily relate to our relationship formed with Franco-Nevada in 2018 to fund a portion of certain mineral acquisitions which are included in our capital expenditures and operating results. Free cash flow is not a measure of net income or operating cash flows as determined by U.S. GAAP and should not be considered an alternative to, or more meaningful than, the comparable GAAP measure, and free cash flow does not represent residual cash flows available for discretionary expenditures. Free cash flow yield is calculated by taking free cash flow divided by the market capitalization of the Company at a given date. Management believes these measures are useful to management and investors as a measure of a company’s ability to internally fund its capital expenditures, to service or incur additional debt, and to measure management’s success in creating shareholder value. From time to time the Company provides forward-looking free cash flow and free cash flow yield estimates or targets; however, the Company is unable to provide a quantitative reconciliation of these forward-looking non-GAAP measures to the most directly comparable forward-looking GAAP measure because management cannot reliably quantify certain of the necessary components of such forward-looking GAAP measure. The reconciling items in future periods could be significant.

The following table reconciles net cash provided by operating activities as determined under U.S. GAAP to free cash flow for the three and nine months ended September 30, 2021.

 

In thousands    3Q 2021      YTD 2021  

Net cash provided by operating activities (GAAP)

   $ 1,015,535    $ 2,728,653

Exclude: Changes in working capital items

     42,282      153,224

Less: Capital expenditures (1)

     (389,746      (976,242

Plus: Contributions from noncontrolling interests

     6,672      19,812

Less: Distributions to noncontrolling interests

     (5,299      (16,535
  

 

 

    

 

 

 

Free cash flow (non-GAAP)

   $ 669,444    $ 1,908,912

 

(1)

Capital expenditures are calculated as follows:

 

In thousands    3Q 2021      YTD 2021  

Cash paid for capital expenditures

   $ 356,827    $ 1,128,362

Less: Total acquisitions

     (22,055      (242,974

Plus: Change in accrued capital expenditures & other

     54,552      87,533

Plus: Exploratory seismic costs

     422      3,321
  

 

 

    

 

 

 

Capital expenditures

   $ 389,746    $ 976,242

 

14


Non-GAAP Net Sales Prices

Revenues and transportation expenses associated with production from our operated properties are reported separately. For non-operated properties, we receive a net payment from the operator for our share of sales proceeds which is net of costs incurred by the operator, if any. Such non-operated revenues are recognized at the net amount of proceeds received. As a result, the separate presentation of revenues and transportation expenses from our operated properties differs from the net presentation from non-operated properties. This impacts the comparability of certain operating metrics, such as per-unit sales prices, when such metrics are prepared in accordance with U.S. GAAP using gross presentation for some revenues and net presentation for others.

In order to provide metrics prepared in a manner consistent with how management assesses the Company’s operating results and to achieve comparability between operated and non-operated revenues, we may present crude oil and natural gas sales net of transportation expenses, which we refer to as “net crude oil and natural gas sales,” a non-GAAP measure. Average sales prices calculated using net crude oil and natural gas sales are referred to as “net sales prices,” a non-GAAP measure, and are calculated by taking revenues less transportation expenses divided by sales volumes, whether for crude oil or natural gas, as applicable. Management believes presenting our revenues and sales prices net of transportation expenses is useful because it normalizes the presentation differences between operated and non-operated revenues and allows for a useful comparison of net realized prices to NYMEX benchmark prices on a Company-wide basis.

The following tables present a reconciliation of crude oil and natural gas sales (GAAP) to net crude oil and natural gas sales and related net sales prices (non-GAAP) for the periods presented.

 

     Three months ended September 30, 2021     Three months ended September 30, 2020  
In thousands    Crude oil     Natural gas     Total     Crude oil     Natural gas     Total  

Crude oil and natural gas sales (GAAP)

   $ 1,002,823   $ 453,358   $ 1,456,181   $ 623,955   $ 77,513   $ 701,468

Less: Transportation expenses

     (45,241     (8,728     (53,969     (46,890     (8,382     (55,272
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net crude oil and natural gas sales (non-GAAP)

   $ 957,582   $ 444,630   $ 1,402,212   $ 577,065   $ 69,131   $ 646,196

Sales volumes (MBbl/MMcf/MBoe)

     14,404     96,188     30,435     16,063     70,510     27,815
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net sales price (non-GAAP)

   $ 66.48   $ 4.62   $ 46.07   $ 35.93   $ 0.98   $ 23.23
     Nine months ended September 30, 2021     Nine months ended September 30, 2020  
In thousands    Crude oil     Natural gas     Total     Crude oil     Natural gas     Total  

Crude oil and natural gas sales (GAAP)

   $ 2,758,859   $ 1,227,769   $ 3,986,628   $ 1,556,445   $ 182,418   $ 1,738,863

Less: Transportation expenses

     (129,218     (27,452     (156,670     (120,780     (27,299     (148,079
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net crude oil and natural gas sales (non-GAAP)

   $ 2,629,641   $ 1,200,317   $ 3,829,958   $ 1,435,665   $ 155,119   $ 1,590,784

Sales volumes (MBbl/MMcf/MBoe)

     43,257     274,352     88,982     42,583     216,735     78,706
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net sales price (non-GAAP)

   $ 60.79   $ 4.38   $ 43.04   $ 33.71   $ 0.72   $ 20.21

 

15


Non-GAAP Cash General and Administrative Expenses per Boe

Our presentation of cash general and administrative (“G&A”) expenses per Boe is a non-GAAP measure. We define cash G&A per Boe as total G&A determined in accordance with U.S. GAAP less non-cash equity compensation expenses, expressed on a per-Boe basis. We report and provide guidance on cash G&A per Boe because we believe this measure is commonly used by management, analysts and investors as an indicator of cost management and operating efficiency on a comparable basis from period to period. In addition, management believes cash G&A per Boe is used by analysts and others in valuation, comparison and investment recommendations of companies in the oil and gas industry to allow for analysis of G&A spend without regard to stock-based compensation programs which can vary substantially from company to company. Cash G&A per Boe should not be considered as an alternative to, or more meaningful than, total G&A per Boe as determined in accordance with U.S. GAAP and may not be comparable to other similarly titled measures of other companies.

The following table reconciles total G&A per Boe as determined under U.S. GAAP to cash G&A per Boe for the periods presented.

 

     Three months ended September 30,        Nine months ended September 30,  
     2021      2020        2021      2020  

Total G&A per Boe (GAAP)

   $ 1.92    $ 1.63      $ 1.87    $ 1.65

Less: Non-cash equity compensation per Boe

     (0.47      (0.59        (0.50      (0.61
  

 

 

    

 

 

      

 

 

    

 

 

 

Cash G&A per Boe (non-GAAP)

   $ 1.45    $ 1.04      $ 1.37    $ 1.04

 

16


Continental Resources, Inc.

2021 Guidance

As of November 3, 2021

 

     2021 Previous    2021 Updated

Full-year average oil production (Bopd)

   160,000 to 165,000    160,000 to 165,000

Full-year average natural gas production (Mcfpd)

   900,000 to 1,000,000    900,000 to 1,000,000

Capital expenditures budget

   $1.4 billion    $1.5 to $1.6 billion

Full-Year Operating Expenses:

     

Production expense per Boe

   $3.00 to $3.50    $3.00 to $3.50

Production tax (% of net oil & gas revenue)

   7.3% to 7.6%    7.3% to 7.6%

Cash G&A expense per Boe(1)

   $1.20 to $1.40    $1.20 to $1.40

Non-cash equity compensation per Boe

   $0.45 to $0.55    $0.45 to $0.55

DD&A per Boe

   $15.00 to $17.00    $15.00 to $17.00

3Q21 to 4Q21 Average Price Differentials:

   3Q21 to 4Q21    4Q21

NYMEX WTI crude oil (per barrel of oil)

   ($3.50) to ($4.25)    ($3.50) to ($4.00)

Henry Hub natural gas(2) (per Mcf)

   $0.25 to $0.75    $0.75 to $1.25

 

1.

Cash G&A is a non-GAAP measure and excludes the range of values shown for non-cash equity compensation per Boe in the item appearing immediately below. Guidance for total G&A (cash and non-cash) is a projected range of $1.65 to $1.95 per Boe.

2.

Includes natural gas liquids production in differential range.

Tags:

Legal Notice